On December 13, Governor Inslee released his proposed budget, including operating, capital, and transportation sections. His operating budget proposal is $54.4 billion and in part relies on $3.7 billion in new revenue. The new revenue comes from a capital gains tax, an increase in B&O taxes on services, and a graduated approach to Real Estate Excise Tax (REET). It seems unlikely that the Legislature will adopt these revenue increases as proposed. Some have already characterized the proposal as too ambitious, but we will likely see some new revenue in future legislative budget proposals.

While the Governor’s budget proposals serve as a starting point for the discussion, the Legislature will draft their own versions during the upcoming session.

The Governor’s budget had some mixed results for cities with good news in several areas and other areas where we will have to do more work to insure full funding.

Basic Law Enforcement Academy: Nine additional classes are funded, bringing the total number to 19 per year as has been requested by cities.

State-shared revenues: The proposal leaves intact the adopted funding levels for most revenues shared with cities, including liquor profits and taxes. However, it appears that the marijuana revenues for disbursement to certain cities would be cut in half with only $15 million instead of $30 million for the biennium. Streamlined Sales Tax mitigation was reduced to just $2.3 million to close out the program per the approach adopted last session.

Public Works Trust Fund (PWTF): There are some changes to how the fund is being accounted for. The good news is that $130 million is budgeted to be available for construction, pre-construction, and emergency loans. In accordance with previous changes, a large portion of revenue is still being diverted from the PWTF to the Education Legacy Trust Account. A new proposed diversion would move $7.5 million from the PWTF to a new broadband program.

One of the most interesting and potentially concerning aspects of the proposed PWTF budget is a reliance on an accounting tool known as the accelerated loan commitment model where the fund is actually overspent; but because projects typically draw down their funds overtime, there is an assumption that the money will be available when it is needed. This practice has been used from time to time, but can be problematic if future revenues do not materialize to cover the total costs.

Culverts: The proposed budget would provide $25 million - only half of the funding requested by the Fish Barrier Removal Board to help fund local culvert replacement projects.

Housing: The proposed budget would provide $140 million to the Housing Trust Fund in addition to approximately $90 million for other types of supportive housing programs.

Behavioral Health Transformation: The proposed operating budget includes $404 million and the proposed capital budget includes $271 million in investments to transform the state’s mental health system.

Pensions: The PERS employer rate increases to 12.68% and PSERS employer rate increases to 11.96%. LEOFF 2 local employer rate will decrease to 5.15%. The proposed budget includes a 3% cost of living adjustment for PERS 1 retirees which results in an increase for employers.

More details about the Governor’s budget proposals are available on AWC’s budget summary chart and through the Office of Financial Management’s budget page.